THE INFRASTRUCTURE

PROJECT DEVELOPMENT
CYCLE

Renato Reside, Ph.D

June 2007
 DISCLAIMER

“The views expressed in this report are strictly those of the authors and do not necessarily reflect those of
the United States Agency for International Development (USAID) and the Ateneo de Manila University”.
 Abstract
Getting a good grasp of infrastructure development entails assessing which stakeholders
are involved at what point and why. Knowing the project development cycle is necessary
to appreciate the role played by different stakeholders in private sector participation in
public infrastructure, particularly since PSP adds additional layers to the already
complicated system of infrastructure development. This brief details each player and step
in the project life cycle, from project identification to ex-post evaluation.
 EPRA Policy Brief

The Infrastructure Project Development Cycle

Infrastructure development encompasses a very broad range of interests, activities

and stakeholders. Getting a good grasp of infrastructure entails assessing which
stakeholders are involved, at which point in development, and why. Private sector
participation (PSP) in infrastructure adds additional layers to the already complicated
system of infrastructure development, augmenting the steps involved in public provision
of infrastructure. Therefore, a good understanding of the project development cycle will
be necessary to further appreciate the role played by different stakeholders in PSP in
infrastructure.

The project life cycle may be divided into several phases:

a) Pre-investment phase

Project identification
Project preparation
Project feasibility study
Project approval and financing

b) Investment phase

Detailed engineering/design
Project implementation

c) Post-investment phase

Project operation
Mid-term monitoring
Ex-post evaluation

Project Identification

Project identification involves surveying different sources to identify demand for

infrastructure projects. The sources of project identification include

1) The Medium Term Public Development Plan

2) People’s representatives, local government units
3) Demand from interest groups or beneficiaries
4) Private sponsors
5) Dialogue between a country and multilateral or bilateral creditors
The basic results from this phase of the project cycle include

1) Determining existing needs or potential deficiencies or existing facilities or

activities, and which are consistent with approved development priorities
2) Establishing the concepts that provide strategic guidance to overcome these
existing or potential deficiencies
3) Identifying initial technical, environmental and economic considerations of the
project
4) Examining alternative ways to accomplish the desired objectives
5) Identifying human and non-human resources to create and support the facilities;
and
6) Selecting the initial project design

Project preparation

Project preparation begins with a description of project objectives, identification

of principal issues, and setting up a timetable for the different phases of the project cycle.
This stage must cover the full range of technical, institutional, financial and economic
issues relevant to achieving project objectives. Government policies that could influence
the project’s outcome may need to be examined. The project’s technical and institutional
alternatives may also need to be critically assessed. An appropriate technical package
must be chosen in implementing the project, and an appropriate agency or unit that will
manage the project.

The basic results from this phase

1) Preparation of detailed plans required to support the facility

2) Indication of the possible technical packages to be considered
3) More realistic assessment of costs, time schedule and operational requirements
4) Identification of areas where high risk and uncertainty exists, and further
exploration of these areas
5) Firm identification of human and other resources for the project
6) Determination of the necessary support systems
7) Identification and initial preparation of documents required to support the project
such as procedures, job descriptions, budget and funding papers

Feasibility Phase

In this phase, the project’s overall potential viability is examined using data and
information gathered at the preparation stage. A lack of proper project planning that
flows from a poor feasibility study has been found to be a major contributor to the failure
of projects. A good feasibility study contains the following modules:

1) Demand and supply or market module

 This module examines demand for the goods and services of a project in the
domestic or foreign market and the supply condition expected to prevail during
the project’s life.

2) Technical or engineering module

This module is concerned with a project’s input parameters, quantities and prices
of inputs by type required for project construction, inputs required for the
project’s operation by year, and the propriety of the technology adopted. It is also
concerned with issues such as project size, design and location, and the
technology to be adopted including equipment and processes to be used.
Assessment of the environmental impact caused by inputs, outputs or technology
should be a central component of this module.

3) Manpower and administrative support module

This module reconciles the project’s technical and administrative requirements

with the supply constraints on manpower. Whether future financial and economic
benefits materialize depend on whether there is sufficient administrative
capability within an agency in charge to put the project in place.

4) Financial module

This module provides the first integration of financial and technical variables
estimated in the marketing, technical and manpower modules. A cashflow profile
of the project is constructed, which identifies all receipts and expenditures
expected to occur during a project’s lifetime.

5) Economic module

Economic appraisal examines the project from the entire economy’s point of view
to determine whether or not its implementation will improve the economic
welfare of the country or the region. Benefits and costs are measured using
techniques to determine the economic prices of goods and services, foreign
exchange and the cost of capital and labor. True economic values of costs and
benefits are not reflected in market prices in the presence of various distortions
such as trade restrictions, price control, taxes, subsidies and minimum wages.
6) Social module

This module deals with the identification and quantification of the project’s
impacts on its stakeholders, including the well-being of particular groups in
society.

7) Institutional module

This module addresses the following issues:

 - Is the entity supposed to manage the project properly organized and its
management equipped to handle the project?

- Are local capabilities and facilities being properly utilized?

- Are changes needed in the policy and institutional setup outside this local
entity?

8) Environmental module

This module should address the following issues:

- What impact will the project have on the environment?

- What equipment or facilities will be required to reduce or eliminate the

pollution from the project and what will be their cost?

- What will be the cost of providing remedies to the adverse impact created
by the project?

Project approval and financing negotiations

After all modules in the feasibility phase have been completed, the project must
be examined to see if it can meet the financial, economic and social criteria set by the
government (e.g., the NEDA ICC) for investment expenditures. This is the final part of
project appraisal and is meant to improve the accuracy of the measures of key variables if
the project shows potential for success. More primary research will have to be undertaken
and perhaps a second opinion sought on other variables. Since estimates of costs and
benefits may be subject to error, the sensitivity of the project’s outcome to variations in
the values of key variables must be analyzed.

Cost estimates should at this point be very accurate and the sources and nature of
financing identified. Identification of financing at this stage will ensure that the project
can proceed to the next phase. Also, the implication on the project costing of each type of
financing will be established.
At the end of this stage, the decision to approve or disapprove a project must be made. If
the feasibility study convinces decision-makers to approve a project, the next major steps
are tying up the financing and developing a detailed project design.

Investment Phase

Detailed design
 In this point in the project cycle, preliminary design criteria must be established
when the project is identified and appraised, but expenditures on detailed technical
specifications are usually not warranted at this time. Once the project has been approved
for implementation, the design task should be completed in more detail. Details of the
basic programs should be provided, tasks allocated, resources to be determined and
functions to be carried out along with their priorities set down in operational form.
Technical requirements, such as manpower needs by skill class, should also be completed
at this stage. After the blueprints and specifications for construction of facilities and
equipment are completed, operating plans and schedules along with contingency plans
must be prepared and brought together.

When this process is completed, the project is again reviewed against the criteria
for approval and implementation. If it is unable to meet the criteria, the result must be
passed onto the appropriate authorities for final disapproval or acceptance.

Project Implementation

This stage covers both the completion of construction activities and the
subsequent operations. Implementation is generally divided into three time periods: an
investment period when the major investments are made; a development period when
production capacity is gradually built up; and the period of full implementation.
Resources are allocated and coordinated to make the project operational. Proper planning
at this stage is essential to prevent undue delays and administrative procedures have to be
designed for the smooth coordination of the activities required in project implementation.
All projects face implementation problems, usually due to planning flaws or changes in
the economic and political environment. Thus, monitoring and supervision systems have
to be evolved to ensure that implementation is completed successfully and on time.

Post-Investment Phase

Project Operation

A project reaches the operation stage after investments have been made. It is
when the expected project benefits start to be generated. As soon as the project is
operational, it is essential that the skills, plans and controlling organization be available
to carry on with the function of the project in order to avoid excessive start-up costs.

Mid-Term and Ex-Post Project Evaluation

For the development of the operational techniques of project appraisal and

improvement in the accuracy of evaluations, it is useful to compare the projects predicted
with its actual performance. In an ex-post evaluation, elements of success or failure are
analyzed. A project evaluation is a must before any follow-up project is planned. A final
detailed ex post evaluation must be undertaken once the project is terminated.
 To facilitate this type of evaluation, the administrative aspects of project
development must be reviewed as soon as the project becomes operational. An audit
should be conducted immediately after the construction phase and a completion report
submitted. The project’s outcome (net present value or internal rate of return) should be
re-estimated based on actual investment costs and updated costs of maintenance and
operations.

More extensive than the audit is the ex post evaluation, where the project’s
performance and overall contribution to development is assessed. Such an evaluation also
identifies the critical variables in the project’s design and implementation that may have
determined its success or failure. From such an evaluation should emerge well-considered
recommendations about improving each aspect of the project design and actual
implementation. Based on this evaluation, ongoing projects may be modified and
subsequent projects in the sector can be improved. Evaluation may be performed by
different parties directly or indirectly involved with the project.
Components of the Project Cycle

Definition or preparation Feasibility phase

Concept or Identification
Implementing agencies
(IAs) identify project to
implement from various
sources.
Implementing agencies: IAs prepare various
1. Review existing policies and modules of the feasibility
procedures that can affect project. study. Determine if
2. Examine technical and project is worthwhile to
institutional alternatives. implement.
3. Assess costs, time schedules
and operational requirements

Project implementation Detailed design

IAs implement, operate
and evaluate progress of
project.
Ex-post evaluation
IAs
1. Re-estimate
project's outcomes
based an actual
performance. Future projects
2. Identify critical
variations from plan.
Implementing agencies:
1. Detail basic programs.
2. Allocate tasks,
3. Determine resources.
4. Complete blue prints
and specifications.
Approval and financing
Approving body
1. defines project parameters;
2. check accuracy of information and
parameters;
3. Decide on approval or rejection of
project.
Implementing Agencies
4. present project for 'yes'/'no' decision
5. arrange financing in case of 'yes'
decision.